You’ve probably heard about all the hype about falling silver prices. Just a few weeks ago, the people were screaming of a bubble in silver. And they nailed it dead on. Now silver prices are back down to $34.95 per ounce, and it seems like silver is dead. Except it’s not. I believe that the silver bull market is not over, so here’s why. Let’s start off by looking at it from a fundamental point of view.
Silver’s demand is still there, and possibly rising. We’ve recently seen the U.S. hit its’ debt ceiling, and now the American government is depending on pension money to function. Not that the government will default of course, but this debt problem is really making investors worried about the bond market. With interests rates at such low levels, no one really wants to buy bonds. The housing market is stuttering (if not double-dipping), and stocks are ok (but not back to pre-2007 levels). So that leaves one market left: commodities. The commodities market that investors are most likely to pile into are gold and silver (sentimental value).
China holds trillions of dollars of American debt. What they want to do right now is divert their surplus away from buying American bonds towards buying gold and silver. This is the only logical solution. The Chinese government won’t be buying other currencies, because currently there is no currency that seems stable in the long run (problematic euro, screwed-up yen). So the demand for buying gold and silver from China will be enormous. As a Chinese man myself, I recently learned that the Chinese government is urging it’s citizens to buy gold and silver. Now that’s real demand that’s going to last for years. The Chinese have trillions of dollars to exchange for gold and silver, and they’re not going to accomplish that overnight (that would drive up gold and silver prices too fast, which is expensive for the Chinese). There will be a few years of steady demand from China for silver.
I’m not going to talk about the supply side of silver, because those numbers can be randomly made up, and there really is no way to actually quantify the real supply of silver in this world.
Another huge force in the silver markets are the traders; the people who depend on technical signals. These traders know that the silver bull market is not over, so that means silver prices will once again break the $50 per ounce barrier (all true bull markets surpass old heights). During the past few days, the silver market has gone sideways. However, volume is still huge, but slowly decreasing. What does this imply. I think it means that the traders are unsure of where to go. As I said, volume is huge, but slowly decreasing. But all this time, prices have gone sideways. This means that at first, a huge number of investors were selling, and a huge number (equal) were buying. Now, the market is settling down to see which way prices are going.
I believe this will be a classic “resistance – support” scenario. If prices break the resistance, which for SLV seems to be $32.50, then prices have further down to go. If it breaks on the upside, which I believe is $39, then it has further up to go. But beware of traders’ remorse. So now, it’s best to wait and see where the market wants to go. Go with the flow, as my grandpa used to say.